Sourcing is part of supply chain management. Any importer, manufacturer, business owner, or retail store must look at sourcing products, goods, and services. Sourcing is an essential part of any procurement process.
Product sourcing is when you source or look to find a supplier for a product you need. Strategic sourcing is strategically sourcing products. Strategic sourcing is not about the lowest purchase price but the lowest overall cost. Product sourcing and strategic sourcing are very similar, but strategic sourcing is sourcing with a plan in place.
Table of Contents
- Product Sourcing Defined
- Why Strategic Sourcing Is Important
- Product Sourcing Vs. Strategic Sourcing
- Frequently Asked Questions
- Related Questions
Product Sourcing Defined
Product sourcing is finding products you can sell at the right price. For many people, when they think about product sourcing, they think about buying a product at the lowest possible purchase price. But product sourcing is not simply a matter of just finding the product at the lowest price. Product sourcing is about ensuring the product is the price, quality, and quantity you need.
Product sourcing includes all of the ways you use to find a product. For example, it could be doing online research, attending a trade show, and asking for a friend’s reference. You do everything to find or source the product at the price, quality, and quantity you need.
Product sourcing may seem very easy, but the truth is that product sourcing is one of the most difficult things for most importers, manufacturers, retail or e-commerce stores. The reason is that even if you find the right price, it may not be of the quality you need. Or the manufacturer may not be the right fit for you and your business.
This is why finding the right partner for your product sourcing needs is not always very easy, especially in our industry of home decor and home furniture manufacturing, as we are a design based business that usually requires a lot of product development, new designs, trend colors, and finishes.
Why Strategic Sourcing Is Important
Since product sourcing and finding the right supply can be one of the most difficult things any company can do, companies must source strategically. Strategic sourcing is the process of product sourcing but taking your sourcing to the next level with proper procedures for your product sourcing needs.
Strategic sourcing is a process that is driven by a goal, procedures, and need. It is also verifiable, meaning it has a system in place for your product sourcing requirements. In other words, it is not a haphazard kind of sourcing, but strategic sourcing is goal and process-driven.
Here is how you can strategically product source:
- Evaluate – Evaluate your current and potential sourcing opportunities and relationships. One of the most important things you can do is evaluate exactly what you need and why you need it. It is much easier for someone to tell you what they can or cannot do for you if they fully understand what you need in terms of quality, quantity, and price.
- Assessing – Assessing your strategic sourcing partner is also important. Is this a person, company, or manufacturer you can work with long-term? Ideally, you want to try to find someone you can do business with for a long time. One of the reasons is that sourcing can be expensive, and finding a suitable supply will save you time and money in the long term.
- Action Plan – The action plan and the procedures you have in place for sourcing is critical. Do you give your supplier detailed information or rough sketches of what you need? Do you have a clear indication of the colors, quality, and price that you need? These are all important things for you to understand when looking at a new product to source.
- Improvement Plans – One important aspect of strategic sourcing is that you constantly have an improvement plan in place. This means to evaluate and assess your sourcing needs and your sourcing strategy. Strategic sourcing is simply about having a system and processes in place for all your sourcing needs.
What makes strategic sourcing different from product sourcing is that strategic sourcing is not just about finding the lowest purchase price but also the overall lowest cost. Simply put, if you constantly need to be sourcing for the same product repeatedly, it will cost you money.
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This is why strategic sourcing is not about the lowest purchase price but about the supplier or manufacturer that will give you the best overall costs. In other words, someone who gives you the quality, quantity, and on-time shipments.
If you must constantly change your manufacturing or sourcing supply, there are many hidden costs you do not see in your final product costs. There is a lot of value in a supplier fully understanding your quality needs without you having to teach or instruct them each time; there is a great hidden economic value in that kind of knowledge and understanding.
Product Sourcing Vs. Strategic Sourcing
Product sourcing and strategic sourcing are the same except for one main difference: strategic sourcing is all about having a defined plan for your product sourcing needs.
Strategic sourcing does not look for the lowest purchase price but the lowest overall costs. With strategic sourcing, you are also constantly looking to improve and reevaluate your organization’s purchasing activities.
Anyone looking to do any product sourcing should also strive to take their source to the next level to do strategic sourcing. A large part of strategic sourcing is about locating the right strategic sourcing partner to help you with your product needs.
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Frequently Asked Questions
What is product sourcing, and why is it crucial in supply chain management?
Product sourcing involves finding suppliers for the products a business needs. It is a critical aspect of supply chain management as it directly impacts a company’s ability to acquire quality goods and services efficiently.
How does strategic sourcing differ from regular product sourcing?
Strategic sourcing goes beyond finding suppliers; it involves a planned approach to procurement. Unlike traditional product sourcing, strategic sourcing focuses on minimizing overall costs rather than just the purchase price, considering factors like quality, delivery time, and supplier relationships.
Why is it important to have a strategic sourcing plan in place?
A strategic sourcing plan ensures that the procurement process aligns with broader business goals. It helps optimize costs, improve supplier relationships, and mitigate risks, contributing to the overall efficiency and competitiveness of the business.
What are the key considerations in product sourcing?
Key considerations in product sourcing include product quality, supplier reliability, cost-effectiveness, geographical location, and ethical and environmental considerations. These factors collectively impact the success of the procurement process.
How does strategic sourcing contribute to reducing the overall cost?
While product sourcing may focus on obtaining the lowest purchase price, strategic sourcing considers the entire cost of procurement, including factors like transportation, storage, and potential risks. By optimizing these elements, strategic sourcing aims to achieve the lowest overall cost.
Can strategic sourcing enhance supplier relationships?
Yes, strategic sourcing emphasizes building and maintaining strong relationships with suppliers. By fostering collaboration and communication, businesses can create partnerships that are beneficial for both parties, leading to more reliable and efficient procurement processes.
Is strategic sourcing only applicable to large businesses?
No, strategic sourcing principles can be applied by businesses of all sizes. Small and medium-sized enterprises can benefit from strategic sourcing by tailoring the approach to their specific needs and scale.
How can businesses ensure ethical and sustainable practices in product sourcing?
Businesses can prioritize ethical and sustainable practices by thoroughly vetting suppliers, choosing those with transparent and responsible operations. Certification programs and industry standards can also guide businesses in making environmentally and socially conscious sourcing decisions.
What role does technology play in modern product and strategic sourcing?
Technology, such as procurement software and data analytics, plays a crucial role in streamlining the sourcing process. It helps businesses gather and analyze data, identify potential suppliers, and manage relationships more efficiently, contributing to informed decision-making.
How can businesses adapt their sourcing strategies to changing market conditions?
Businesses should regularly reassess and adapt their sourcing strategies to changing market conditions. This involves staying informed about industry trends, monitoring supplier performance, and being agile in adjusting strategies to maintain competitiveness in a dynamic business environment.
What Is The Difference Between Supply Chain Management and Logistics?
Supply chain management is about the collaboration and partnerships to get the goods from raw materials to the end consumer; it is about the partnerships and collaborations within this supply chain process. Logistics is one part of supply chain management; logistics is about moving goods from one place to another. Sometimes, the logistics providers will also store the goods and send them to the end consumer.
You can learn more by reading our blog What Is The Difference Between Supply Chain Management and Logistics? by clicking here.
What Are The Benefits Of Supply Chain Management?
There are many benefits to supply chain management. The benefits of supply chain management include teamwork and collaboration, improved quality control, better efficiency and effectiveness, on-time deliveries, maximization of overhead costs, improved cash flow, risk mitigation, and shipping optimization. All of these areas are greatly helped by proper supply chain management.
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